In retrospect: A perfect storm over Cyprus

In retrospect: A perfect storm over Cyprus


By Christos Meliopoulos

Negligence, incompetence and possibly ulterior motives have been pinpointed as the cause of Cyprus’s woes in a single day of admissions and revelations. Cyprus retrospectively resembles an island battered from all sides, within and without, duly led to the current economic stalemate.

First, Reuters reported that when the Cyprus bank run began in March, it was Russians that set much of the pace. The news agency cited a document revealing that 34 out of 95 traceable companies, each having transferred at least 5 million euros out of Laiki and Bank of Cyprus in the first two weeks of March, just before the bank closure on the 16th of the same month, have links to Russia.

The majority of the companies included in the list come from Cyprus, while a few have been traced back to countries and territories like Kazakhstan, Ukraine, Cayman Islands, the British Virgin Islands and the Dutch Antilles. In total Reuters has been made aware of 5,323 transactions totalling more than 1.9 billion euros. It’s not clear where the money ended up – it could be other banks in Cyprus.

At the same time, the financial news website Stockwatch has published a 47-page IMF document, which among much else discloses some executive board members’ criticism of the country’s programme handling by the Fund itself. A burning question asked by members (who are set to approve Cyprus’s loan instalment) is why the Management consented to the first botched and rejected bailout plan, involving insured depositors. The members’ comments also reveal strong scepticism over the “overoptimistic” fiscal forecasts for the island.

Testifying on what had preceded all that before the Committee of Inquiry for the Economy that has been set up in Nicosia, a key player in all phases of the Cypriot drama, ex-Finance Minister Michalis Sarris, expressed his discontent over the pernicious delay in the conclusion of the bailout agreement. Mr Sarris also pointed to the increased spending policy of the previous government as the main reason of the economic downturn.

The mix of all the above, faults of Cypriot and foreign making, managed to bring the island to its knees and forced it to accept the bitter medicine of the troika imposed austerity and the severe hit to the banks. As much as current Finance Minister Haris Georgiades may claim that the climate in the Eurogroup has changed in favour of Cyprus, he knows that the determining factor for the turnaround of the country’s fate will be the building of a new model of growth; and the avoidance of failures such as the ones now openly admitted.